Debt crisis: as it happened - October 22, 2012

The eurozone and European Union's debt hit a high in 2011, according to
Eurostat, but the deficit has decreased. However 17 members of the EU had
public deficits higher than the 3pc permitted by EU law.

Eurostat data showed that 17 members of the EU had public deficits higher than the 3pc permitted by EU law in 2011.

Latest

17.35 In anticipation of all of the excitement due this week (see 17.19), and since it seems to have gone quiet on the continent, we're going to call it a day.

We'll be back tomorrow morning and you can follow any and all developments here. Thanks for following us today and have a good evening.

17.24 "Hello international lenders, this is Cyrpus calling" is how I imagine the phone call will go later this evening when the Island contacts its lenders to invite them back to the country for final talks on a comprehensive aid package for the Greece-exposed island, Reuters is reporting.

In a short while, we will send the troika the complete proposals of the government and invite it to Cyprus to negotiate the support package to the Republic of Cyprus.

Our attempt is to make it tolerable, and with the contribution of all to overcome the difficulties we are experiencing now.

17.19 There should be some excitement later in the week (obviously depending on your idea of what's exciting) as lots of data will be released.

After a relatively quiet day, Angus Campbell, head of market analysis at Capital Spreads, said:

Things become busier for the rest of the week with a raft of confidence figures, PMI surveys and growth figures due for release which should provide us with some excitement as the week progresses.

17.11 Apparently one in six people in the EU are at risk of poverty, according to executive director of the Austrian Association for Policy Consulting and Development.

Andreas Hoeferl said that in 2010 there were 80.7 million people in the EU region threatened by the problem, and added that "what is particularly unsettling is that it is an upward trend".

Latvia was at highest risk of poverty in 2010 with 21.3 percent, along with Latvia were Romania, Bulgaria and Spain, with those most at risk being the unemployed, single parents, large families, immigrants, and older people.

Countries worst-affected by the financial crisis also had the highest number of people at risk of poverty, such as Ireland and Spain.

Mr Hoeferl added that western European countries are also vulnerable to poverty risk, with 36 million people in the region at risk, and immigrants affected at double the rate of local citizens.

According to his research, those least at risk are people with a university degree and full-time workers, the study showed.

16.53 That's it for European markets today and they finished the day how they started. Down.

The FTSE 100 finished the day down 0.22pc, the CAC closed 0.61pc down, the DAX was 0.71pc down and the IBEX finished 0.67pc down.

16.47 Over to Greece now, where Reuters is reporting that the country could be given more time for certain structural reforms if its international lenders suggested this, according to a senior member of Merkel's party.

Hermann Groehe, general secretary of Merkel's Christian Democrats (CDU), suggested that Athens should get some leeway on agreed reforms.

This come after Horst Seehofer, leader of the Bavarian sister party of Merkel's CDU, indicated on Saturday Greece could get more time to implement them.

He said after a party board meeting:

If there are indications that savings targets have been met but that certain structural reforms need more time to be implemented, the question arises as to what recommendations the troika will make.

General view of burning buildings around Syntagma (Constitution) square during violent protests in Athens, as people in the capital protested against the austerity measures.

16.38 Elsewhere in Europe, earlier today Finnish Prime Minister Jyrki Katainen was attacked by a man with a knife, but was unhurt.

Katainen was campaigning in Turku, western Finland, when a man came up to him brandishing a knife, according to the daily Helsingin Sanomat's online edition.

Katainen's security guards stopped the man, and he was taken away by police in handcuffs, the paper said.

16.32Just before the end of the questions to Cameron, the PM said that overtime, if you have a banking union and fiscal union, it was "inevitable" that a tighter political union would occur.

If you have a situation where German voters have to stand behind Greek deposits, well these are deeply political questions.

So in my view as the eurozone deepens, which I think is inevitable, there will be pressures for further political union.

16.20Cameron still being grilled in the Commons on Europe. He said, that as 50pc of exports from the UK go to European countries, "we need those markets to be open".

But as the European Union changes and as the eurozone becomes a tighter block, clearly the relationship with those inside the eurozone and outside it, will change.

We should be looking at how we can maximise the UK's interst as that happens

If we come to agreement in November then so be it , if not then so be it.

I am happy to talk but not to spend a lot of money.

16.15 Cameron has also promised to veto the banking union, if the UK's interest are not met.

He has reiterated his demand for changing the voting modalities at the EBA to balance the interest of those in the eurozone and those out.

He said he was "very conscious" that the UK is home to 40pc of EU financial services.

15.54 David Cameron, speaking in the House of Commons this afternoon, said he doesn't want to veto a baking union for the eurozone, nor did he "fundementally disagree with the single currency's needs for a banking union".

Just as we have a solid banking union, they need one.

Where we should put our negotiating [skills)], for those of use outside of the eurozone, is to ensure we have have proper safegaurds.

We have a single currency and it works partly because we have a banking unon and blocking it in the eurzone for the sake of it just doens't make sense.

Earlier today the FT splashed (see 08.20) on the story that Germany was planning to warn Britain that it will seek to cancel next month’s European budget summit if David Cameron, the prime minister, insists that he will veto any deal other than a total freeze on spending.

But later in the morning (see 11.58) both the UK and German government denied that such a conversation had taken place.

15.30Ireland will be feeling very loved today. After Merkel said special circumstances would be taken in to account (see 12.26) when looking at Ireland's debt, the Emerald Isle now has the backing of France's President Francois Hollande.

Ireland's Taoiseach Enda Kenny is in Paris today meeting with Hollande. The French man said he backed a retroactive recapitalisation of Ireland's banks.

Mr Hollande said:

Ireland was a special case and should be treated as such

Enda Kenny meeting with Francois Hollande earlier today

15.14It is unlikley that Spain will request a bailout before the next regional vote, which takes place in Catalonia on 25 November, according to Kathleen Brooks, research director for UK EMEA at Forex.com

She points out that we are now in the seventh consecutive week without the activation of the Outright Monetary Transactions (OMT) - an unlimited bond-buying programme but within strict and effective conditionality through EFSF/ESM programme.

Although Spanish bond yields are slightly higher today at 5.42%, they remain well below the 7% line in the sand. The question people are now asking is does the ECB need to activate the OMT programme?

It seems unlikely Spain will make an aid request before elections in Catalonia in 4 weeks’ time, but this doesn’t seem to be panicking the market, so there could be another few weeks’ of respite.

However, we agree...that...Rajoy should apply for a line of credit sooner rather than later due to the heightened risks of Madrid missing its fiscal targets for 2012 and 2013, which could spook investors and cause disruption in the bond markets.

14.57 They are awake on the other side of the pond and markets are down in early trading, just as they were in Europe.

The S&P 500 is down 0.1pc, while the Dow Jones is down 0.3pc.

14.50An interesting story from Reuters today. Apparently, just when things couldn't get any worse for Greece, it is now facing a new threat - mosquito-borne diseases.

Reuters reports that species of the blood-sucking insects that can carry exotic-sounding tropical infections like malaria, West Nile Virus, chikungunya and dengue fever are enjoying the extra bit of warmth climate change is bringing to parts of southern Europe.

And with austerity budgets, a collapsing health system, political infighting and rising xenophobia all conspiring to allow pest and disease control measures here to slip through the net, the mosquitoes are biting back.

You have been warned.

13.52 It's looking likley that a deal will be reached between Greece and its creditors which will release the next tranche of its bailout, thereby stopping the country from defaulting next month.

Simon O'Connor, a spokesman for EU Economy Commissioner Olli Rehn, said in Brussels that an agreement was expected to be reached within days.

We are in the process of finishing with the Greek authorities the technical work on the last fiscal and structural measures on which we have to find agreement.

13.39 The Eurostat figures that were out earlier (see 11.26) are bad news for Greece which has seen its debt to GDP for 2011estimated up to 170.6pc, from an estimate made in April of 165.3pc. The debt-laden country has the higest debt-to-GDP of any of the 17-nation bloc.

It's public deficit was also revised up, to an estimate of 9.4pc, up from 9.1pc.

12.45Lunch time update on markets, which fell in early trading but have picked up since then.

The FTSE 100 in London is up 0.2pc, the CAC is up 0.3pc in Paris, as is the IBEX in Madrid and the DAX is flat in Berlin.

12.32 Spain's banks should be fully capitalised by mid-2013, according to the European Union's anti-trust chief.

EU Competition Commissioner Joaquin Almunia said in the text of a speech to be delivered at a conference in Barcelona, that EU EU regulators would clear restructuring plans for nationalised lenders Bankia, Catalunya Caixa, Nova Caixa Galicia and Banco de Valencia by the end of November.

Almunia also said he expected a recapitalisation plan from Banco Popular by the end of this month.

The whole Spanish financial system will be fully capitalised by mid-2013 at the latest

12.26 Germany appears to be refuting everything today.

German news agency DPA is reporting that German government spokesperson Steffen Seibert has said Ireland won't enjoy exceptions to the European Stability Mechanism procedure, but said special circumstances are taken into account.

He added Ireland does not enjoy “special status” in the support of its banks.

11.58Germany has NOT warned Britain that it will cancel an EU summit n EU summit on the bloc's long-term budget scheduled for next month if David Cameron threatens to veto the vote, Reuters is reporting.

Earlier today (see 8.20) the FT reported (it was their splash) that Merkel did not believe there is any point in holding the budget summit to agree on a seven-year framework for EU spending if Britain vetos any deal other than a total freeze on spending.

However, a spokesperson for Cameron said they had received no such warning and added that Britain did not see the case for increases in spending above the rate of inflation.

They haven't, no, they haven't said anything.

The prime minister set out his position on the budget on Friday in his press conference. He's made it clear he's willing to do a deal on the budget in November, so long as that is the right deal for British taxpayers.

The German government has also rejected the story in the FT.

“I unequivocally reject this report,” Steffen Seibert, Merkel’s chief spokesman, told reporters at a regular government briefing in Berlin. “The German government has an interest in the success of the special summit,” since an agreement “would be a strong signal Europe could send out about its ability to act.”

11.42Germany's central bank monthly report (see 10.30), aside from from forecasting a sharp downturn in the country, has also said that the ECB's measures to support countries swept into the euro zone crisis maelstrom are raising risks to the euro system's balance sheet and re-distributing them among taxpayers.

The more effectively monetary policy supports the financial systems of the crisis countries with its measures, the more risks are transferred to the balance sheet of the euro system and ultimately redistributed among all taxpayers of member countries.

11.26 Looking through that Eurostat data (see 10.47) 17 members of the EU had public deficits higher than the 3pc permitted by EU law in 2011. They were:

11.03 Another European Central Bank policymaker has backed German Finance Minister Wolfgang Schaeuble's idea for a eurozone commissioner with power over member nations' budgets and reform of European Parliament decision-making.

Joerg Asmussen said on Monday it would be a "good idea" to have a European Monetary Commissioner with special rights.

Yesterdayfellow ECB policymaker Klaas Knotthrew his support behind the German's idea. The Dutch man, whoi heads the Dutch Central Bank, said he "welcomed" the idea and said it should be considered "carefully".

Wolfgang Schaeuble has called for a eurozone commissioner with power over European Union nations' budgets.

10.47 The eurozone and European Union's debt hit a high in 2011, according to official figures out by Eurostat.

In the eurozone the government debt to GDP hit 87.3pc at the end of 2011, up from 85.4pc at the end of 2010, while the EU hit 82.5pc, up from 80pc.

It's not all doom and gloom though as the figures also showed that government deficit in the eurozone and EU had decreased. In the EU it fell to 4.1pc in 2011, from 6.2pc in 2010 and in the EU it fell to 4.4pc, from 6.5pc.

10.30The eurozone's largest economy, Germany, has published a report today saying that its economy will see a sharp slowdown at the end of the year.

In the finance ministry report it said:

In the final quarter of 2012, growth is likely to slow substantially as economic weakness in a number of eurozone countries puts the brakes on growth

The forecast is backed up the drop in investor sentiment, as seen in the fifth consecutive monthly decrease in the ZEW's monthly confidence index.

Germany notched up growth of 0.5 percent in the first quarter and 0.3 percent in the second quarter.

Last week, the German government fractionally upgraded its growth forecast for the current year to 0.8 percent, but slashed its prognosis for next year to just 1.0 percent.

10.09Meanwhile over in Greece, the prime minister Antonis Samaras has expelled lawmaker Nikos Stavrogiannis from his New Democracy party.

Stavrogiannis had told Greek weekly newspaper Real News that he would vote against austerity measures that the government is preparing.

His departure is spurring speculation that the debt-laden nation is closer to carrying out austerity measures.

09.50 Victory in Galicia for Rajoy's austerity measures has helped pushed the euro higher today. It is up 0.1pc at $1.3032 from a low of $1.3013

Meanwhile, the yen has been pushed to a three-month low against the dollar. The dollar rose around 0.4pc to 79.68 yen, its strongest since mid-July, on expectations for more economic stimulus from the Bank of Japan. Earlier today Japan posted its worst September trade figures in more than 30 years.

09.29 Yields on Spanish 10-year bonds have held steady following the two regional elections (see 08.15).

Spanish 10-year bond yields weree 2.4 basis points higher at 5.4pc, having fallen around half a point last week after Moody's held its rating of the country as investment grade.

[The election result was] slightly positive for Spanish bonds, because it will give (Rajoy) more leeway to ask for a bailout.

If he had lost Galicia, he would have had more difficulties to sell such a move to his party and the population.

Another regional election is scheduled in Catalonia on 25 November.

09.20 Last week the EU announced that its legal framework for a eurozone banking regulator would be in place by the end of this year and implemented during the course of 2014.

Well now Michel Barnier, the European commissioner in charge of financial regulation, has said the European Commission will make a proposal next year on introducing a joint agency for shoring up or closing troubled banks.

He told reporters on monday that once the banking supervisor was in place, Europe will then move on to plans for a body to tackle banks in difficulty.

"The second stage is a proposal in 2013 for a European resolution agency," he said, adding this would have broad legal powers and work closely with national authorities.

08.59Ireland is waking up to the news that Angela Merkel has said that the country's bank debt is a "special case".

After a flurry of phone calls between Dublin and Berlin all weekend, Ireland's Taoiseach Enda Kenny and German Chancellor Merkel issued a joint statement:

The Taoiseach Enda Kenny and Chancellor Angela Merkel spoke together this afternoon...They discussed the unique circumstances behind Ireland's banking and sovereign debt crisis, and Ireland's plans for a full return to the markets.

In this regard they reaffirmed the commitment from June 29th to task the Eurogroup to examine the situation of the Irish financial sector with a view to further improving the sustainability of the well performing adjustment programme.

They recognise in this context, that Ireland is a special case, and that the Eurogroup will take that into account.

It also comes as Mr Kenny travels to Paris in a bid to get President Hollande's support for more favourable terms on the mountain of debt.

Ms Merkel agreed there were "unique circumstances" behind Ireland's bank and state debt crisis and said measures to ease the debt burden would be examined.

The joint statement does not bring a bank deal tangibly closer, but Ireland will view it as strengthening its position.

08.40 Some 6,000 miles away Japan has posted its worst September trade figures in more than 30 year.

Official data showed on Monday, that the world's third-largest economy has been struggling to turn around its fortunes following the March 2011 earthquake and tsunami disaster, while also suffering from Europe's debt crisis, slowing Chinese demand and the strong yen

08.30 Markets are not having a good Monday morning so far.

The FTSE 100 and DAX are down 0.2pc in early trading, and the CAC is down 0.3pc.

08.20 The FT is reporting that Germany is planning to warn Britain that it will seek to cancel next month’s European budget summit if David Cameron, the prime minister, insists that he will veto any deal other than a total freeze on spending.

Germany’s chancellor Angela Merkel does not believe there is any point in holding the budget summit to agree on a seven-year framework for EU spending if Britain intends to veto any deal, say people close to the negotiations.

08.15 On Sunday, there were two regional elections in Spain.

Spain’s ruling conservative party has held on to control in regional elections in Galicia, giving a boost to Prime Minister Mariano Rajoy as he pushes on with tough austerity measures, even as nationalist parties triumphed in the Basque Country.

The elections in two of Spain’s 17 autonomous regions on Sunday were seen as the first real test for Mr Rajoy’s Popular Party after ten months in power that have seen a deeply unpopular programme of public spending cuts and tax hikes.

08.11 Good morning and welcome back to our live coverage of the eurozone debt crisis.